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Mortgage Guide

How to get a home loan

What does property use have to do with a home mortgage?


The short article below will explain property use and the relationship with a home mortgage.

One variable that determines your home mortgage rate is property use.

3 types of property use:

  • Primary residence
  • Second home or vacation home
  • Non-owner occupied or investment property

1. Primary residence use:

Fannie Mae principal residence properties defines a principal residence as a property that a borrower occupies as his or her primary residence.

Like most rules, there exist exceptions.  See the Fannie Mae table below for examples.

Primary Residence Use Borrower Types2. Second home property use:

Some Fannie Mae requirements for a second home are listed in their table below.

Second Home Properties

3. Investment Properties

Fannie Mae defines an investment property as being owned but not occupied by the borrower.   

Home loans are priced based on risk.  

Of the 3 property use types above, primary residence typically carries the least risk and therefore is priced accordingly with lower rates especially when compared to investment property rates. In addition to higher rates, investment properties will have tighter underwriting guidelines than primary residence use homes.

How many financed properties can I have at one time?

The short answer is ‘it depends’ but most lenders limit customers to 4 financed properties.

One can own unlimited properties free and clear and these don’t count when lenders are adding the number of mortgages one currently has. However, lenders usually limit a person to 4 financed properties at one time. 

An example could be a customer has 1 primary residence mortgage, 1 second home mortgage, and multiple investment property loans and in this scenario 2 investment properties.  This totals to 4 home loans at one time.   

Also, you can only have 1 primary residence. Here are the full Fannie Mae limits on the number of financial properties.

Warning:

Mortgage fraud exists if one misleads the lender on the property use.  

One example of this is if a borrower were to buy an investment property but on the home mortgage application states the property use will be a primary home. Just because there is better loan pricing for primary homes doesn’t mean a borrower can mislead the lender to get lower financing rates to possibly increase their ROI on their investment property.

In summary, there are 3 types of property use that include primary residence, second home or vacation home, and investment property. Property use is a variable with the pricing of a loan. The more the risk, the higher the rate which in our example above was the investment property.

Which property type would like us to finance?

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